BUSINESS OVERVIEW A1A(28)(1)( A1A(34)(1)( We are one of the four largest commercial banks in the PRC in terms of total assets with the 3rd Sch 1 most extensive international branch network among PRC commercial banks. According to the LR1107 Banker magazine, we were the 32nd largest bank in the world based on total assets as of December 31, 2004. Our core business is commercial banking, which primarily consists of corporate LR8.04 banking, personal banking and treasury operations and accounted for 92.7% of our operating proÑt in 2005. We also conduct investment banking and insurance activities through our subsidiaries. The combination of our commercial banking, investment banking and insurance businesses has created a universal banking platform that allows us to provide integrated services to our customers. We are headquartered in Beijing with operations in the Chinese Mainland, Hong Kong and Macau and other overseas regions. Our operating proÑt was RMB37,416 million, RMB37,122 million and RMB53,636 million in 2003, 2004 and 2005, respectively, of which RMB13,203 million, RMB17,786 million and RMB29,676 million was derived from our domestic operations, respectively. As of December 31, 2005, our total assets were RMB4,740,048 million, of which 76.4% were derived from our domestic operations, before inter-company balance elimination. We are the market leader in the PRC in a number of areas. Based on data from PBOC, we were: ¬ the largest foreign currency-denominated loan provider and deposit taker in terms of outstanding balance among PRC commercial banks, with market shares of approximately 43.3% and 40.9%, respectively, as of December 31, 2005; ¬ the largest provider of international trade settlement services among PRC commercial banks, with a market share of approximately 32.6% in terms of transaction volume for the the year ended December 31, 2005, and the leader in trade Ñnance among the Big Four, with a market share of approximately 57.7% in terms of outstanding balance as of December 31, 2005; ¬ the bank among the Big Four with the highest non-interest income as a percentage of our total operating income as calculated based on PRC GAAP in 2004; ¬ the bank with the highest growth rate among the Big Four in total residential mortgage loans, which was 31.0% from 2003 to 2004 and 14.5% from 2004 to 2005; and ¬ the only bank among the Big Four which experienced growth in market share of Renminbi- denominated-deposits among PRC commercial banks in each of the year from 2003 to 2005. We had one of the most extensive domestic distribution networks, with over 11,000 branches and outlets, 580 self-service centers and 11,600 automated service machines throughout the PRC as of December 31, 2005. We also have an extensive international network. As of December 31, 2005, our international network comprised over 600 overseas branches, subsidiaries and representative oÇces covering 27 countries and regions, and we had correspondent banking relationships with over 1,400 foreign banks. In addition, we oÅer electronic-banking services such as telephone banking and Internet banking. As of December 31, 2004, we had the highest total assets, customer deposits and outstanding loans and advances per branch among the Big Four according to data released by the Big Four. We are also a leading commercial bank in Hong Kong and Macau. Our Hong Kong and Macau operations together accounted for 19.8% of our total assets before inter-company balance elimination as of December 31, 2005 and approximately 41.1% of our operating proÑt in 2005. Our subsidiary, BOCHK, was the second largest commercial bank in Hong Kong in terms of total assets as of December 31, 2005, and its direct holding company, BOCHK Holdings, is listed on the Hong 120 BUSINESS Kong Stock Exchange. Our Macau branch was the largest commercial bank in Macau in terms of total assets as of June 30, 2005 based on data published by the Macau government. BOCHK and our Macau branch are each one of the few banks authorized to issue bank notes in their respective jurisdictions. OUR STRENGTHS Our principal strengths include: Well-Recognized Brand Name Established in 1912, we are one of the best-known commercial banks in the PRC. During more than 90 years of history, we have built one of the most recognized brand names in the PRC through our contributions to the evolution of the PRC commercial banking industry. We have made many signiÑcant achievements in the PRC commercial banking sector. For example, in 1929, we were the Ñrst PRC commercial bank to establish a foreign branch when we opened our London branch. In addition, in 1985, we oÅered the Ñrst bank card in the PRC. In 1994 and 1995, our Hong Kong branch and our Macau branch became bank note issuing banks in Hong Kong and Macau, respectively. Furthermore, in 1998, we arranged the Ñrst U.S. dollar- denominated syndicated loan for a PRC bank as the lead manager and agent. We have been a Global Fortune 500 company since 1990. Since 1992, we have been selected eight times as the ""Best Bank in the PRC'' or ""Best Domestic Bank in the PRC'' by EuroMoney, as well as ""Best at Commercial Banking (2005 Real Estate Awards)'' in the PRC and Hong Kong in 2005 by EuroMoney. In each of 2004 and 2005, we were named as the ""Best Trade Finance Bank in the PRC'' and ""Best Foreign Exchange Provider in the PRC'' by Global Finance. We are awarded the ""Well-Known Brand in the PRC'' recognition by the SAIC. In 2006, we were named as the ""Triple A Best Trade Finance Bank for China'' and ""Triple A Best Cash Management Bank for China'' by the Asset. According to the August 2005 survey conducted by the Financial Times, ""Bank of China'' was ranked as one of the top ten global brands in the PRC. We have also been appointed as the oÇcial banking partner of the Beijing 2008 Olympic Games, which further strengthens our brand recognition domestically and internationally. Largest and Rationally Distributed Overseas Network Complementing an Extensive Domestic Network Our domestic branch network consisted of over 11,000 branches and outlets, 11,600 automated service machines and 585 self-service centers throughout the PRC as of December 31, 2005. As of the same date, approximately 46.5% of our domestic branches were located in the Yangtze River Delta, Pearl River Delta and Bohai Rim Economic Zone, which are among the more economically developed regions of the PRC. As of the same date, approximately 63.9% of our domestic branches were located in urban regions. We currently have the largest overseas network among the PRC commercial banks, with over 600 branches, subsidiaries and representative oÇces covering 27 countries and regions, including major international Ñnancial centers such as New York, London, Tokyo, Hong Kong, Frankfurt and Singapore. BOCHK had over 280 branches in Hong Kong, the largest branch network among the banks in Hong Kong as of December 31, 2005. BOCHK is well positioned to take advantage of the rapidly growing Öow of business between the PRC and Hong Kong. Our Macau branch had a market share of approximately 30% in terms of total assets as of June 30, 2005 according to data published by the Macau government. 121 BUSINESS We believe we operate the most eÇcient branch network among the Big Four as measured by total assets, customer deposits and outstanding loans and advances per branch, which totaled approximately RMB359 million, RMB281 million and RMB180 million, respectively, as of December 31, 2004 based on data released by the Big Four. Our extensive domestic and overseas network enables us to structure and deliver products and services to serve our customers on a global basis, and allows us to capture the business opportunities arising from the increasing integration of the PRC into the global economy. Solid Customer Base and Strong Presence in Attractive Customer Segments In the PRC, foreign exchange services tend to be utilized by larger corporate customers and more aÉuent individuals. Capitalizing on our position as one of the most experienced foreign exchange banks in the PRC and on our extensive global network, we have established and continue to maintain strong relationships with leading domestic and international corporations and Ñnancial institutions. We also have a strong presence in the aÉuent retail customer segment. We had business relationships with more than 220 of the Global Fortune 500 companies operating in the PRC and maintained lending relationships with more than 41,000 domestic corporate customers, including over 6,700 foreign-invested enterprises, as of December 31, 2005. Large corporate customers account for the majority of our overall business. As of December 31, 2005, approximately 66.3% of the aggregate balances of our domestic corporate loans and advances were made to corporate customers that had outstanding loans and advances with us in excess of RMB100 million. See ""Description of Our Assets and Liabilities Ì Assets Ì Loans and Advances by Size of Exposures to Single Corporate Borrowers for Our Domestic Operations''. In addition, we provide trade related services to over 370 of the leading 500 PRC import and export companies as ranked by the Ministry of Commerce of the PRC. Our relationships with these large corporate customers have enabled us to increase our product penetration in the most signiÑcant corporate customer segment in the PRC. As of December 31, 2005, we had approximately 3.3 million personal banking customers with deposit balances of RMB100,000 or more and approximately 334,800 personal banking customers with deposit balances of RMB500,000 or more. As of the same date, we had established over 200 wealth management centers that serve our wealth management customers under our global wealth management brand of ""BOC Wealth Management ( )''.